ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT FOLLOWING FURTHER BRIEFING Doc. # 49
In this action in diversity for fraud and unjust enrichment by plaintiff Bruce Sons ("Plaintiff") against defendant Jim McManus ("Defendant") the court issued an order on September 3, 2010, (the "September 3 Order") granting Defendant summary judgment as to Plaintiff's claim for fraud and requesting further briefing on Plaintiff's claim for unjust enrichment. Doc. # 59. In particular, the court requested additional briefing on Defendant's conduct with regard to the 2.5-acre parcel of land that is the subject of this action that would indicate notice of Defendant's intent to permanently deprive Plaintiff of benefits retained by Defendant constituting unjust enrichment. Defendant's further briefing, attached exhibits and request for judicial notice was filed on September 17, 2010. Plaintiff's further briefing was filed on September 20, 2010.
DEFENDANT'S ADDITIONAL UNDISPUTED MATERIAL FACTS
Defendant proffered a set of undisputed material facts in conjunction with his motion for summary judgment. Those undisputed material facts were summarized in the September 3 Order and are incorporated here by reference. In response to the court's order for further briefing, Defendant submitted a "supplemental factual summary" that provides a timeline of events that Defendant contends are "each alone sufficient to trigger the [running of the] statute of limitations." Doc. # 60 at 2:23-24. The following is a summary of the events presented in Defendant's time-line that the court finds significant and supported by additional materials submitted by Defendant: ! In May 1994, Plaintiff transferred the entire 10-acre Property to Defendant, including the 2.5-acre parcel that is the subject of this action. The following month Plaintiff was incarcerated. ! On October 18, 1994, Defendant sent a letter to Plaintiff's brother, Dwight Sons, offering a sell-back of the Property to Dwight and stating that the property would go "on the open market" if the Property was not repurchased (the "October 18 Letter"). ! For at least a two-year period after 1994 Defendant allowed the brother and sister of Defendant's wife to live on the property to serve as "housekeepers and security agents . . . ." Defendant does not allege he received any rent from his brother and sister-in-law's occupation of the Property. ! On February 7, 1995, Defendant and his wife transferred the entirety of the Property to the McManus Living Trust ("Trust") by way of quitclaim deed. The transfer was recorded. ! The Trust entered into an Oil and Gas Lease with Enron Oil & Gas Co. in 1999. While a copy of the lease document is included in at Exhibit "C" of Doc. # 61, there is no indication what consideration was given or whether there was any income from the lease. ! On November 3, 1999, the Trust leased the Property, including the land, residence, shop building, fixtures, and adjacent parking areas," to James and Marilyn Payne. The Lease was from a term of three years and provided income or rent to Defendant in the sum of $10,000.00 per year plus $4,000.00 every other month. See Doc. # 62 - 4, Exh. "D," at ¶ 4.
! On June 29, 2003, the Trust transferred its interest in the Property to Stern Oak Properties, Inc. By means of a grant deed recorded on July 18, 2003." The instant action was filed by Plaintiff on June 13, 2008.
COURT'S ORDER OF SEPTEMBER 3, 2010
While the court's memorandum opinion and order filed September 3, 2010, (the "September 3 Order") granted Defendant's motion for summary judgment as to Plaintiff's claim for fraud, the court determined that it lacked information necessary to determine whether summary judgment was due as to Plaintiff's claim for unjust enrichment. Defendant's motion for summary judgment on Plaintiff's claim for unjust enrichment is based solely on Defendant's contention that Plaintiff's claim is barred by the applicable statute of limitations. As the court observed, the elements of a claim for unjust enrichment are (1) receipt of a benefit and (2) unjust retention of the benefit at the expense of another. Lectrodryer v. Seoul Bank, 77 Cal.App.4th 723, 726 (2nd Dist. 2000). While the court was able to determine that Defendant received the benefit of the transfer of the Property as of the date of the quitclaim deed in 1994, the court was not able to determine on the facts presented when Defendant's retention of the benefits of the transfer became unjust. Noting that the court could not determine that Defendant's continued possession of the Property, including the 2.5-acre parcel, was unjust in the immediate aftermath of Plaintiff's incarceration, the court concluded that there was no event or circumstance the court could point to on the facts before it to mark the point at which Defendant's retention of the benefit of the transfer of the Property could be said to have become unjust.
The facts before the court as of the date of the September 3 Order indicated that Defendant had exercised various powers as grantee of the Property, including arranging for his brother and sister to stay on the property and directing Plaintiff's brother, Dwight, to remove Plaintiff's personal effects from the Property. The court opined, however, that none of the facts before the court indicated any change in the positions of Plaintiff and Defendant relative to each other such that Defendant's retention of Plaintiff's 2.5-acre parcel, which could not be deemed unjust shortly after Plaintiff's incarceration, could then be deemed unjust. Based on the information before the court at the time, the court's September 3 Order opined that the sale of the property to a third-party could signal such a change in position such that the retention by Defendant of all the proceeds of the sale could be deemed unjust.
Defendant contends that the statute of limitations for actions based in fraud or error is three years and the limitations period for claims that arise out of unenforceable contracts is two years. Defendant does not make an argument as to which limitations period applies, but argues that Plaintiff's claim for unjust enrichment is time-barred regardless of which limitations period is used. The parties agreed and court assumed for purposes of its analysis in its September 3 Order that the 3-year statute of limitations applied for purposes of each of Plaintiff's claims for relief. The court continues on the basis of that assumption for purposes of reaching a final determination of Defendant's motion for summary judgment.
The legal standard set forth in the court's September 3 Order is incorporated hereby reference. Likewise, the court's discussion in the September 3 Order pertaining to the "discovery rule" and to the elements of a claim of unjust enrichment is also incorporated here by reference. See Doc. # 59 at 5:6 - 9:1.
In its September 3 Order, the court focused on the sale of the Property to a third party as the event that would mark a change in the relationship between Plaintiff, who had not paid Defendant for his "out of pocket expenses," and Defendant, who had not subdivided the Property but whose dealings with the Property or with Plaintiff were not sufficient to evince an intent to unjustly retain any benefit. The court focused on the date of the sale of the Property because that was the only event the court was aware of that would mark a significant change between the parties' relationship to each other and to the Property. However, Defendant's additional pleading draws the court's attention to certain events prior to the sale of the Property that may have signified unjust retention of the benefits of the Property significantly before the Property was finally sold.
While the court does not agree with Defendant that Defendant's exercise of various of the "bundle of rights" associated with his possession of the Property was sufficient to constitute unjust retention of the benefit of the property as early as 1994, the court finds that events Defendant allege occurred in 1995 and in 1999 are sufficient to make that showing. On January 23, 1995, Defendant reconveyed the entirety of the Property via quitclaim deed to his Trust. The transfer was recorded on February 7, 1995. Although there was no obvious change with regard to the disposition of the Property as a result of placing it in Defendant's Trust, the fact the Property was placed in the Trust without any evidence of subdivision of the Property or reservation of rights in favor of Plaintiff evinces an intent on Defendant's part to treat the entirety of the property as being, and remaining, Defendant's possession and evinces an intent not to further subdivide the Property in accordance with the alleged agreement.
Second, and more conclusively, Defendant, acting as trustee of the Trust, executed a lease agreement with James and Marilyn Payne on November 3, 1999. The lease specifically granted to the lessees rights to the use of the residence, the shop and adjacent parking areas. Doc. # 62 -4 at ¶ 1; that is, to use specifically those areas that were part of the 2.5-acre parcel that Plaintiff alleges was supposed to be subdivided and reconveyed to Plaintiff under the terms of the Deal. The lease on the Property generated an income to Defendant in the amount of $10,000.00 per year plus $4,000.00 every other month for the 3-year term. The terms of the lease provide that the lessee was responsible to buy and maintain property and liability insurance, to pay all assessed property taxes, and to pay for any repairs or maintenance costs during the term of the lease. Thus, gross income from the lease of the property in the sum of the $34,000 per year appears to have been largely undiminished by any expenses that might otherwise have accrued to Defendant as owner and lessor of the property. Neither party contends that income from the lease was directed to, or shared with, Plaintiff nor is there any evidence that the income from the lease was used to offset the money Plaintiff owed Defendant for Defendant's expenses. In addition, at the same time the lease was executed, Defendant, again as trustee ...